2009: Cribs foreclosed upon and Europe sulking

Five cents won’t even buy you a spoken paragraph of no particular value in Bablion. So consider yourself lucky that you found me…

What comes around, goes around. I imagine that as European confidence swelled over the over-valuation of the Euro and the falling of the dollar, Europeans seemed to forget two things: they had huge investments in the US credit markets and Americans were outrageous consumers when the Dollar was stronger. If you don’t believe me- just take a look at MTV’s reality television show, Cribs, about typically overly-decorated and super-sized, celebrity homes. Perhaps, Jon Stuart can follow up on the MTV hit with Cribs in Foreclosure soon.

The alpha Bush and a little humor from the Simpsons (below).

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A Brief History

The Great Depression is said to have begun on Black Tuesday, October 29, 1929 (a.k.a The Wall Street Crash of 1929) when over-valued share prices on the New York Stock Exchange collapsed and began what would be a month long fall in which the Dow Jones Industrial Average (DJIA) was down 182.57 from the booming speculative highs of 1929. The Great Depression is associated with a grinding slow down of international trade, manufacturing and construction. Personal incomes, tax revenues, prices and profits fell as unemployment, social uneasiness, and fear gathered momentum. It is also associated with private mortgage debts, commercial business debts and a great inequality between the rich and consumers.

The stage for World War II was set into action.
Preceding the 1929 Black Tuesday, the then DJIA fell 17 percent over the course of a month from its high of 381.17 on September 3, 1929.

On Black Tuesday (October 29, 1929), 12 percent was lost in a single day: a 14 billion dollar loss in a single day with a weekly total loss of 30 billion dollars. An interim bottom was hit a few weeks later (198.6) but the market would not push past the 1929 highs (381.17) until November 1954.

On September 27, 2007, the DJIA closed on a high of 13,912.94. Almost six months later, the DJIA is closing on a low of 11,893.69 (March 7, 2008). This is six month fall of 2019.25, 11 times the devaluation of the 1929 panic- a downturn that was mostly recovered in the next six months. The then DJIA recovered within 30 percent of the 1929 highs by April 30, 1930. Does this suggest that the US is in a down spin? Certainly, down turn seems an inappropriate false consciousness. So it is a bit of a hint, I regret.

Negative Outlooks

Economists are watching (like hawks) for other unhappy signs: falling personal incomes, tax revenues, prices, profits and rising unemployment. Similar downspin trends were seen in 1999, but things seemed to go on fine. Market mechanisms and federal reserve policies that they didn’t have in 1929 seemed to be doing a great job. Da, the dollar has been on a steady but gentle decline for the last four years- if you watched things from outside of the US. Meanwhile, gold, sweet crude and the Euro were on a steady, stealthy rise.

Despite the amazing spider senses and spiderman agility and heroics of the Federal Reserves, there are weaknesses today that weren’t there in the 30s. For example, personal incomes in the 1930s were not carrying the same kind of heavy personal debt loads and monthly crises that they carry today. Nor were private persons and businesses so dependent as they are today on such large credit lines.

Nor were tax revenues so dependent on the taxes on just about everything (but breathing) that they have become in our time. Nor were prices so competitive as they are today thanks to the competitive drivers such as internet and big retail chains. Nor were profit margins as slim as they are today by the big retail chains that focus much on volume of sales.

If economists are looking for the same movements of 1930 before they get panicky, they may have given their warnings of negative outlooks and doom-saying too late. I like to imagine that the economic sophistication allows things to roll on for quite a while before things come to a full stop. On the other hand, economists in the know and the Media also understand that confidence is key to money that is not backed by gold.

Telling it like it is (when the chips are down) can only mean the evaporation of whatever chips can still be played- even if the remaining chips are being manufactured as we speak.

What comes around, goes around

I imagine that as European confidence swelled over the over-valuation of the Euro and the falling of the dollar, Europeans seemed to forget two things: they had huge investments in the US credit markets and Americans were outrageous consumers when the Dollar was just a little stronger. Unfortunately, the supposedly unknown extent of credit losses seems like it is only going to get worse. Unable to find a way out of the deep end of cacat, European banks may be stalling for time (we’ll blame it on the American recession when they stop consuming our exports) as long as European confidence can hold up.

Some suggest that without the ratification of the Treaty of Lisbon, it is likely that Europe will find itself in an unusual business cycle that will be prolonged, aggravated and worse than the 1930s- due to the careless and short-sighted policies governing the integration of nations demonstrating less than an enthusiastic determination for free market and democratic policies. On the other hand, European nationalists fear that European states will have to give up important aspects of autonomy and independence by signing the Lisbon Treaty. In other words, they believe they will have to sell their souls and they remain unconvinced that US problems will really hit home. But European nationalists do not realize that they may have to do this to keep from drowning in the banking failures, flagging exports to the US and price inflation that may hit by the end of the year.

Just as in the 1920s, we have enjoyed the excesses, ambitions and greed of big business and shareholders. The constant pressure from stockholders to see growth and profit has led to risk-taking and voodoo accounting practices that hide losses and failures. Innovation, competition, and employee expectations for constant increases in the quality of life present monolithic challenges to small and big organisations worldwide. Innovation, for example, comes at a high price to an organization and its competitors (especially technology innovations) and ROI becomes very long term in the opinion of shareholders. Some suggest, ROI of competitive technological innovation is so long term that it is often never realized in the short, precarious life of small business.

Yet, we believe we can all be millionaires or multi-millionaires (as prices inflate), at least one at a time. We’ll even wait in line for it- who ever you are and where ever you are in the world. There’s no thought of settling for sour grapes.

If Americans would be very upset to find out that the American dream has been small-sized to single-family town house communities where there isn’t parking space for visitors and everyone studies the neighborhood covenant for infractions by neighbors (your sun umbrella is too colorful for this neighborhood!)… how much worse is it for Europeans who also have their materialistic dreams. Not to mention that Romanians too are inspired to dream – dreams formed while watching Hollywood’s glamorous portrayal of the lifestyles of everyday people: big houses, well decorated interiors, multiple cars, customer service standards, and free refills.

The inequality of wealth and income is a serious problem in Europe, Asia and elsewhere. Anonymous commentators (gee- people like their jobs!) suggest that the implications of such in a global downturn are not cheerful. It is believed that the rising costs for consumer goods and services will make almost-miserable lives unbearable. Some wonder if EU limits on agricultural production, excessive quality controls on consumables, and other regulations has made European states more vulnerable to price inflation. Aw! Too bad for Western Europe.

And if Americans have to give up one of several family cars, buttered popcorn at the movies, and free refills, can you imagine how bad it could get in Europe- or even Romania? It’s almost enough to make an ex-pat prepare to give good bye kisses to the easily-approachable, beautiful and sexy young women… and hurry home.

Money v. Gold

Although the Dollar and Euro successfuly divorced from a gold standard some time ago, old habits seem to die hard- especially in Israel. Gold and other metal prices are being inflated by nervous investors and by doing so, it looks to me as if they force a further downturn in confidence in the Dollar and Euro. Come back around and more private investors turn to the imagined safety of the three ancient metals: gold, platinum and silver. The circle could become a vicious cycle.

Such a vicious cycle could become one factor which drives the banks to inflate as they try to print more money to lend to businesses who find themselves needing even more and more cash to cover short term cash flow problems. As the Dollar and Euro contract, it will buy less, buy less discount, and spend faster on operations.

However, the inflation (creation) of money has been going on for many years now- especially in good times.

Some say there is no such thing as monetary inflation since most modern currencies do not depend on gold. By what standard can we accurately measure macro-level inflation if there is no measure? But if people or businesses find themselves paying more for the same or less; they will lose confidence and become cautious: buy less and save more.

Some say that buying less and saving more represent the kind of panic that slows down the movement and jet streams of money. And it seems like it is the movement of money which economists and captialists pin their hopes and fears. Most economists would tell us that holding (hoarding) cash is morally and ethically wrong in the present economic climate. We should buy more and live better when we see a red sky on the horizon. Unfortunately, the banks don’t feel the same way as the economists. Banks aren’t jumping to enlarge personal credit lines, cut credit-related interest rates and soften on requirments.

Next Steps

As soon as the European bankers provide a way for lesser banks and lending companies to enlarge personal and small business debt loads and expand credit to the same with easy terms, we can spend our way to a greater confidence.

Robert Scoble first recommendation is that Americans get income from overseas or, perhaps, he is suggesting to keep more of your American income by outsourcing work overseas. When the problem begins to hit Europe, will Europeans get income from the US since their euros buy a lot more in the US?

Next, Scoble recommends that business people should lock clients into longer-term contracts – even at the expense of compromises. Robin Good recommends treating customers as partners and get out of business relationships that force you into unhappy or unworthwhile compromises.

Employees, Scoble suggests, should make sure they are in the top 10 percent of performers in a company. Good suggests that if you are not appreciated for your high performance, move fast. If you don’t perform, good luck to you. Regardless, have a parachute; network, socialize, show your knowledge and talents off (if you have any) and make yourself love-able.

Good recommends getting out of the big companies (Microsoft, Oracle, and Google – as examples) because they will be the first to make lay-offs and they will continue to lay-off until they get the right balance. Get into small companies where you can make a difference, says Goods, and get deep into the brand (make the small company succeed internally and externally). Or, he suggests, take a little risk, and make a small company with trusted friends and colleagues.

But if you are a slacker – don’t bother. You’ll only drag your friends down with you. And you don’t want to do that because you may need to borrow a cup of sugar from them in the near future.

Do not be afraid.

What you are reading here is NOT more or less of the Truth. It is truthinessa la Stephen Colbert; it is my meager opinion and it is also less than an opinion – it is my own way of clarifying questions in my own mind. I do not have an education in economics. For the most part, I studied history, psychology and philosophy. I share my thoughts -in-progress with you because maybe you have similar questions and we can find common ground for friendship, collaboration, or dialogue.

Please do gather your own information, think about things, tune out the Media lies and marketing, and clarify questions in your mind. Not just about world and political events that may impact you, but more so about you, what you do and why you do it.

And then, let me know when you start sharing it, because I will be very glad to read your thoughts in progress- especially in my new contemplative silence where corporate-filtered News and Media get less and less playtime in my life. I get lonely too. But comments will help.

Mr. Faryna is editor-in-chief of Black and Right (Praeger Press, 1996), a landmark collection of socio-political essays by important American thinkers including U.S. Supreme Court Justice Clarence Thomas.

Copyright

Copyright 1996 to 2008 by Stan Faryna.

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